PROJECT RISK MANAGEMENT IN PUBLIC PRIVATE PARTNERSHIP

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University of Windsor

Scholarship at UWindsor

Electronic Theses and Dissertations

8-3-2017

Project Risk Management in Public-Private Partnerships: An Equitable Risk Allocation Decision Model based on Psychometrics

James Dunn

University of Windsor

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This online database contains the full-text of PhD dissertations and Masters’ theses of University of Windsor students from 1954 forward. These documents are made available for personal study and research purposes only, in accordance with the Canadian Copyright Act and the Creative Commons license—CC BY-NC-ND (Attribution, Non-Commercial, No Derivative Works). Under this license, works must always be attributed to the copyright holder (original author), cannot be used for any commercial purposes, and may not be altered. Any other use would require the permission of the copyright holder. Students may inquire about withdrawing their dissertation and/or thesis from this database. For additional inquiries, please contact the repository administrator via email ([email protected]) or by telephone at 519-253-3000ext. 3208.

Recommended Citation

Dunn, James, "Project Risk Management in Public-Private Partnerships: An Equitable Risk Allocation Decision Model based on Psychometrics" (2017).Electronic Theses and Dissertations. 6603.

https://scholar.uwindsor.ca/etd/6603

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Project Risk Management in Public-Private Partnerships:

An Equitable Risk Allocation Decision Model based on Psychometrics

by

James Dunn

A Thesis

Submitted to the Faculty of Graduate Studies through the Department of Political Science in Partial Fulfillment of the Requirements for

the Degree of a Master of Arts at the University of Windsor

Windsor, Ontario, Canada

2017

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Project Risk Management in Public-Private Partnerships:

An Equitable Risk Allocation Decision Model based on Psychometrics

by

James Dunn

APPROVED BY:

______________________________________________

J. Berryman Faculty of Law

______________________________________________

J. Sutcliffe

Department of Political Science

______________________________________________

B. Anderson, Advisor Department of Political Science

July 5, 2017

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DECLARATION OF ORIGINALITY

I hereby certify that I am the sole author of this thesis and that no part of this thesis has been published or submitted for publication.

I certify that, to the best of my knowledge, my thesis does not infringe upon anyone’s copyright nor violate any proprietary rights and that any ideas, techniques, quotations, or any other material from the work of other people included in my thesis, published or otherwise, are fully acknowledged in accordance with the standard referencing practices. Furthermore, to the extent that I have included copyrighted material that surpasses the bounds of fair dealing within the meaning of the Canada Copyright Act, I certify that I have obtained a written permission from the copyright owner(s) to include such material(s) in my thesis and have included copies of such copyright clearances to my appendix.

I declare that this is a true copy of my thesis, including any final revisions, as approved by my thesis committee and the Graduate Studies office, and that this thesis has not been submitted for a higher degree to any other University or Institution.

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iv ABSTRACT

Public-private partnership (P3) procurement has grown into an internationally acclaimed means of achieving value for money while procuring public infrastructure projects. Unlike conventional infrastructure procurement models, P3s transfer a considerable amount of project risk away from the public sector to the private sector. During a long, methodical procurement phase, public and private partners reach a final risk allocation agreement over forecasted risks regarding a project’s potential design, build, finance, operation, and maintenance.

This thesis begins with exploring the P3 procurement phase, highlighting relevant project actors and stages leading up to the signing of a final contract. The concepts of risk and project risk management are studied under the assumption that P3 project partners operate under a principal-agent relationship, where public authorities are tasked with aligning private partner motivations with their own motivations through contractual incentives.

A core literature database provides 54 identified P3 project risks along with their suggested sectorial allocations. Exactly half – 27 – of these risks are deemed contentious because they are not unanimously allocated to a given sector within the database. These 27 contentious P3 project risks were subjected to an expert questionnaire asking Canadian practitioners to allocate them to a preferred sector based on a five-point semantic differential scale. The respondent pool was equally comprised of public and private sector practitioners from an array of specialized occupations relevant to P3 project risk management.

Expert input was subjected to various quantitative methods that measured:

(i) levels of agreement within sectors over risk allocation preferences, (ii) levels of agreement between sectors over risk allocation preferences, and (iii) overall risk allocation preferences based on the five-point semantic differential scale. It is found that: (i) both sectors enjoy strong levels of agreement over risk allocation preferences, (ii) 6 of 27 risks show statistically significant levels of disagreement between sectors over their allocation preferences, and (iii) there are risks that should generally be borne by either the public or private sector pending individual P3 project circumstances.

The research findings should enable scholars and practitioners alike to establish more concrete conceptions of where P3 project risks should generally be allocated pending circumstantial conditions unique to different P3 projects. Where risks cannot be broadly allocated due to circumstantial conditions, a review of the study’s final risk allocation model provides contextual considerations that influence their allocation. Concluding sections acknowledge this study’s methodological and theoretical limitations. Recommendations for future studies to consider, both methodological and theoretical, are provided.

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DEDICATION

In memory of Vito Badalamenti. Our time spent together was brief, but you’ve left an everlasting impact on me through your granddaughter and family. I promise to cherish all the good you have brought into this world.

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ACKNOWLEDGEMENTS

Back in September 2015, my brother introduced me to a critically acclaimed sitcom, Rick and Morty. By October, I was hooked; I had finished watching both the first and second seasons. To my dismay, the closing comments of the second season were: ‘tune in to Rick and Morty Season 3 in like, a year and a half, or longer, to see how we unravel this mess!’ Since that time, I’ve experienced a mess of my own, albeit glittered in positive moments. As is the saying, ‘give me the bad news first’: for the past two-plus years, up until very recently, I have spent – on average – about half my days in bed.

When I was granted waking hours of the day, they were conditional on me being perpetually exhausted. Balancing my academic, social, and work life seemed like an insurmountable process. Another saying comes to mind: I was a shadow of my former self (if you can’t tell already, it’s been hard refraining from idioms while writing this thesis)! Fast-forward to fall 2016, and I find out that my sinuses and tonsils were causing obstructive sleep apnea (I instinctually bracketed off text to write ‘OSA’ there; it appears grad school has gotten to me). The good news, I have been recently rescued by my CPAP machine (trying hard to ignore the ironically placed colloquial acronym). The better news, I underwent a tonsillectomy that fixed the problem before my ‘oral’ defense (it’s also been difficult to refrain from incorporating dad jokes into my writing, or bracketed run- on comments as it seems).

Until very recently, my energy levels could not keep up with the personal and professional expectations I’ve grown accustomed to meeting. I cannot make up for the lost hours spent working in vein over the course of my M.A. journey. I can, however, view the past for what it is and the future for what it can be; if I may paraphrase Friedrich Nietzsche, ‘the future influences the present just as much as the past.’ Luckily, my present is continually influenced by an overwhelmingly loving circle of friends and family that have been supportive in their own respective ways throughout this entire process.

To my Zia Franca and Nonna Rosa, who have provided me with Maslow’s first four needs for the past ten months, I could never repay you for the timely support when I needed it most. Between Nonna’s pasta and Zia’s words of encouragement, I found the strength to spend long days behind my computer screen – you are both my second and third mothers, and I wouldn’t trade you for the world.

To the final piece of that tripartite, thank you mom for constantly reminding me to push myself and be proud of my work in all facets of life. I attribute this thesis and my Board of Governors Medal to the work ethic you’ve instilled in me from a young age. To my dad, for playing an important role in helping me find my work ethic again through the aid of a Green Shield-procured CPAP machine, thank you… I’d like to say this is a joke, but I wouldn’t have completed this project without my CPAP, and it’s not a cheap device!

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To the person who has impacted my life the most since I began this project, thank you Lauren for your love and support. You have been both selfless and compassionate throughout the trying times and I am so privileged to call you my girlfriend. A big, big shout out also goes out to Rita and John Miceli for ensuring my study got off the ground. It is hard to be unabashed in the face of the support your family has offered during this journey.

To Jason, our co-efforts have recently shifted from the weights to the books, and you have allowed me to enjoy both experiences substantially more than if I were working on my own. Thank you for constantly being up for prolonged study sessions and keeping your apartment free as if it were my own – you’re truly a brother to me. To my blood brother, Matthew, start visiting Nonna more often – she misses you!

A special thank you goes out to Dr. Bob Arnold at the University of Windsor. Few at this institution rival your knowledge of quantitative methods – even fewer rival your benevolence. Thank you for your many responses to my many inquiries. Your guidance was invaluable to me. On this note, I must also thank the always-capable Aaron Bondy for taking the time to elucidate foreign mathematical concepts to me. I owe you dearly old friend.

Thank you Dr. Jeff Berryman for taking the time out of your busy days to evaluate this work. Thank you Dr. John Sutcliffe for being an ever-present mentor during my six years under this wonderful department. There have been a handful of times where I sought your assistance and you never wavered in your support.

Your treatment of subordinates reminds me of what true leadership means. In light of the political climate of our bordering neighbours, it is integral to our social fabric that people like you continue to lead with dignity and respect. You are a true role model for your students and staff.

Speaking of role models, I am happy to say that my M.A. has brought me under the very large wings of Dr. Bill Anderson at the Cross-Border Institute. I can count the funding I have received from the University of Windsor and the CBI over the years, but I can’t put a price on having people like yourself and Dr.

Sutcliffe in my corner. In the ‘early days,’ I was happy to establish a rapport with my supervisor; light-hearted, off-topic conversations were frequent and enjoyable.

As my defence deadline became more imminent, talks about Deflategate and fishing turned into talks about entropy and assumptions of equidistance between ordinal variables. I must say that I am appreciative of both types of meetings. Your coalescence of character and ability is something I admire and wish to emulate – thank you for being a fantastic mentor and friend.

A final thanks goes out to Dan Harmon, co-creator of Rick and Morty.

Back in 2016, I watched a short interview that influenced the remaining entirety of my research. To paraphrase Dan, he said that you end up making ‘good stuff’ by making ‘a bunch of bad stuff.’ Dan reminded me it is a ‘cardinal sin’ to assume your job is to make something good without error.

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Whether you’re writing an M.A. thesis or writing a universally acclaimed sitcom viewed by millions of people, ‘your definition of good will change as you get better.’ The only way you can get better is by throwing out the terror of suboptimal work and being prepared to ‘make something that sucks. Then criticize it and fix it.’ No one is ‘going to make all the right choices’ from the onset. You need to be prepared to ‘make something that sucks’ in order to expand your capabilities to make ‘good stuff.’ With Dan’s imparted wisdom, I began my journey into P3 literature in 2016 without fear of the monumental task in front of me and without fear of how little I knew.

It has been over a year and a half since I watched the Season 2 finale of Rick and Morty. Since then, I have come to terms with unfortunate medical conditions, met my girlfriend of a year, and completed an M.A. thesis. Despite 2016’s roadblocks, I’ve been able to produce something I am proud of by taking Dan’s advice and running with it. When things slowed down to a jog, I remembered that the path to good work is not flatly paved; you’re going to trip and fall sometimes on the way to success – and that’s OK. Thank you, Dan.

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TABLE OF CONTENTS

DECLARATION OF ORIGINALITY ... iii

ABSTRACT ... iv

DEDICATION ... v

ACKNOWLEDGEMENTS ... vi

LIST OF FIGURES ... xiv

LIST OF ABBREVIATIONS ... xvi

LIST OF SYMBOLS ... xviii

CHAPTER 1 A NATIONAL CONTEXT FOR P3s ... 1

1.1 Introduction ... 1

1.2 Defining Optimal Risk Allocation ... 4

1.3 Thesis Structure ... 8

CHAPTER 2 THE P3 PROCUREMENT PROCESS ... 11

2.2 P3 Project Types ... 16

2.3 Major P3 Players: Interests, Incentives, and Financial Relationships ... 20

2.4 Advisory Units ... 24

2.5 P3 Screening ... 27

2.6 Value for Money ... 30

2.7 Competitive Selection ... 36

2.8 Conclusion ... 42

CHAPTER 3 RISK AND PRINCIPAL-AGENT RELATIONSHIPS ... 46

3.2 Agency Theory ... 48

3.2.1 The Principal-Agent Issue of Adverse Selection ... 50

3.2.2 The Principal-Agent Issue of Project Risk Management ... 52

3.3 Defining Risk ... 54

3.3.1 The Problem of Uncertainty ... 54

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3.3.2 Distinguishing between Risk and Uncertainty ... 55

3.3.3 Assessing and Affecting Risk ... 58

CHAPTER 4 PROJECT RISK MANAGEMENT ... 62

4.2 The State of Research for P3 Project Risk Management ... 63

4.3 Pre-Contractual and Post-Contractual Project Risk Management ... 66

4.4 First-Step and Second-Step Risk Transfer ... 69

4.4.1 Case Study: The Right Honourable Herb Gray Parkway ... 72

4.5 Risk Identification, Assessment, Classification, and Mitigation ... 74

4.5.1 Risk Transfer ... 84

4.5.2 Insuring Risk ... 91

CHAPTER 5 RISK ALLOCATION RECOMMENDATIONS IN P3 LITERATURE ... 96

5.2 Literature Review ... 98

5.2.1 Risk Allocation in the Melbourne City Link Project ... 100

5.2.2 Case Study of Government Initiatives for PRC's BOT Power Plant Projects ... 101

5.2.3 Partnerships Victoria: Risk allocation and Contractual Issues ... 102

5.2.4 PPP Manual Module 4: PPP Feasibility Study, South Africa ... 103

5.2.5 The Allocation of Risk in PPP/PFI Construction Projects in the UK ... 106

5.2.6 Role of PPPs to Manage Risks in Public Sector Projects in Hong Kong ... 107

5.2.7 Risk Allocation in the Private Provision of Public Infrastructure ... 109

5.2.8 Modeling Risk Allocation Decision in Construction Contracts ... 110

5.2.9 Preferred Risk Allocation in China’s PPP Projects ... 112

5.2.10 Empirical Study of Risk Assessment and Allocation of PPP Projects in China ... 113

5.2.11 PPP Projects in Singapore: Critical Risks and Preferred Risk Allocation ... 114

5.2.12 An Examination of Risk Allocation Preferences in PPPs in Nigeria ... 116

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CHAPTER 6 RISK ALLOCATION PREFERENCES OF P3 PRACTITIONERS ... 120

6.2 Research Design ... 122

6.2.1 Application of Expert Questionnaire ... 122

6.2.2 Assuming Equidistance of Semantic Differential Scales ... 125

6.2.3 Methodologies for Data Analyses ... 127

6.3 Assessment of Respondent Groups ... 134

6.3.1 Mean Values within and between Sectors ... 135

6.3.2 Agreement within Respondent Groups ... 137

6.3.3 Agreement between Respondent Groups ... 138

6.4 Previous Methodologies used to propose a Risk Allocation Decision Model ... 141

6.4.1 Majority Opinion Analysis ... 142

6.4.2 Half-Adjusting Principle ... 143

6.4.3 Hypothetical Normal Distribution Curve Formula ... 145

6.5 Proposed Risk Allocation Decision Model: Hybrid Adjusting Principle with Ranges ... 152

6.5.1 Membership Functions and Membership Degrees ... 155

6.6 Allocating Contentious P3 Risks ... 163

6.7 Risks Leaning Towards Public Sector Allocation ... 164

6.7.1 Expropriation and Nationalization ... 165

6.7.2 Land Acquisition ... 168

6.7.3 Political/Public Opposition ... 169

6.7.4 Change in Law ... 170

6.7.5 Exclusive Right/Competition ... 171

6.7.6 Site Availability ... 172

6.7.7 Force Majeure ... 174

6.7.8 Residual Assets Risk ... 176

6.8 Risks Leaning Towards an Evenly Shared Allocation ... 177

6.8.1 Excessive Contract Variation ... 178

6.8.2 Project Approval and Permit ... 180

6.8.3 Ground Conditions ... 181

6.8.4 Residual Value Risk ... 183

6.8.5 Changes in Industrial Code of Practices ... 185

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6.8.6 Supporting Utilities Risk ... 188

6.8.7 Influential Economic Events ... 191

6.8.8 Environmental Protection ... 192

6.8.9 Construction/Design Changes ... 193

6.9 Risks Leaning Towards Private Sector Allocation ... 195

6.9.1 Availability of Labour/Materials ... 196

6.9.2 Asset Ownership ... 197

6.9.3 Foreign Currency Risk ... 199

6.9.4 Income Risk ... 201

6.9.5 Interest Rate ... 203

6.9.6 Inflation Risk ... 207

6.9.7 Market Demand Change ... 209

6.9.8 Tariff Change ... 211

6.9.9 Weather Conditions ... 213

6.9.10 Third Party Tort Liability ... 214

CHAPTER 7 STUDY LIMITATIONS AND SUGGESTIONS FOR FUTURE RESEARCH ... 218

7.2 The Issue of Transparency ... 218

7.3 Methodological Limitations ... 219

7.3.1 The Assumed Equidistance between Ordinal Data Points ... 220

7.3.2 The Assumed Equivalue of Ordinal Data Points ... 223

7.3.3 Points of Consideration from Expert Respondents ... 225

7.3.4 Narrowing Research Scope ... 227

7.3.5 Questionnaire Methods ... 228

7.3.6 Specifities of Risk Matrices ... 229

7.4 Theoretical Limitations ... 231

7.4.1 Public-Choice Approach to Agency Theory ... 234

7.4.2 Holding the Taxpayer’s Agent Accountable ... 238

7.4.3 Increased Transparency and Accountability: A Recommendation for All ... 241

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BIBLIOGRAPHY ... 247 VITA AUCTORIS ... 262

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LIST OF FIGURES CHAPTER 1 A NATIONAL CONTEXT FOR P3s

Figure 1.1: Key features Distinguishing P3s from Conventional Procurement ... 7

CHAPTER 2 THE P3 PROCUREMENT PROCESS Figure 2.1: Scope of P3 Risk Transfer by Delivery Model ... 20

Figure 2.2: Structural Relationships of Major P3 Players in DBFOM Projects ... 23

Figure 2.3: Preliminary Value for Money Methodology for P3s ... 33

Figure 2.4: Conceptual Value for Money Illustration ... 35

Figure 2.5: Stages of the P3 Procurement ... 44

CHAPTER 3 RISK AND PRINCIPAL-AGENT RELATIONSHIPS Figure 3.1: Traditional Principles of Principal-Agent Relationships ... 50

CHAPTER 4 PROJECT RISK MANAGEMENT Figure 4.1: Model of First-Step and Second-Step Risk Transfer ... 70

Figure 4.2: Pre-Contractual Project Risk Management Cycle ... 78

Figure 4.3: Pre-Contractual Project Risk Management Cycle – Clarified Steps ... 81

Figure 4.4: Risk Mitigation Alternatives for a P3 ... 83

Figure 4.5: Risk Transfer Principles for Uninsurable Risks and Uncertainties in P3s . 87 Figure 4.6: P3 Decision-Tree for First-Step Risk Transfer ... 88

Figure 4.7: Broad Risk Allocation Template for Pre-Contractual P3 PRM ... 89

CHAPTER 5 RISK ALLOCATION RECOMMENDATIONS IN P3 LITERATURE Figure 5.1: Geographical Representation of Core Literature Database’s Origins ... 99

Figure 5.2: Classification of Core Literature Database ... 99

Figure 5.3: Comparing Risk Allocation Preferences in Core Literature Database .... 119

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CHAPTER 6 RISK ALLOCATION PREFERENCES OF P3 PRACTITIONERS

Figure 6.1: Contentious Risks Definitions ... 120

Figure 6.2: Background Information of Sampling Frame ... 124

Figure 6.3: Independent Two-Sample t-Test for Risk Allocation Preferences ... 136

Figure 6.4: Mann-Whitney U Test for Risk Allocation Preferences ... 140

Figure 6.5: Majority Opinion Analysis for Risk Allocation Preferences ... 142

Figure 6.6: Half-Adjusting Principle for Risk Allocation Preferences ... 144

Figure 6.7: Normal Distribution Curve ... 146

Figure 6.8: X10% over Normal Distribution Curve at One Standard Deviation ... 148

Figure 6.9: X10% over Forced Normal Distribution at One Standard Deviation ... 149

Figure 6.10: Distribution of Total Mean Scores for Contentious P3 Risks ... 151

Figure 6.11: Lower and Upper Confidence Levels of Contentious P3 Risks ... 153

Figure 6.12: Separate Ranges for Risks with Significant Sectorial Disagreement .... 154

Figure 6.13: Ranges for Select Risks over Adjusted Scale ... 160

Figure 6.14: Proposed Risk Allocation Decision Model for Contentious P3 Risks ... 161

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LIST OF ABBREVIATIONS ACEC – Association of Consulting Engineering Companies AFP – alternative financing and procurement

BOO – build-operate-own

BOOT – build-operate-own-transfer BOT – build-operate-transfer

CAPR – common area payment reduction

CCPPP – Canadian Council for Public-Private Partnerships CI – Confidence Interval

DB – design-build

DBF – design-build-finance

DBFO – design-build-finance-operate

DBFOM – design-build-finance-operate-maintain DBOM – design-build-operate-maintain

DOF – degrees of freedom EC – European Commission EU – European Union HR – human resources

IERC – Independent Expert Review Committee

IISD – International Institute for Sustainable Development JV – joint venture

KDLD – Hong Kong Disneyland LCL – Lower Confidence Level MAE – material adverse effect MCL – Melbourne City Link

MTO – Ministry of Transportation Ontario

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xvii NPM – new public management

NSR – New Southern Railway

NTSA – National Treasury of South Africa OAG – Office of the Auditor General of Canada

OECD – Organization for Economic Cooperation and Development P3/PPP – public-private partnership

P3 NCOE – P3 National Center of Expertise PFI – private finance initiative

PRM – project risk management PSC – public sector comparator

PUMC – Philips Utilities Management Corporation

PWGSC – Public Works and Government Services Canada RFP – request for proposals

RFQ – request for qualifications RMA – risk mitigation alternative ROD – record of decision

SPSS – Statistical Package for Social Sciences SPV – special purpose vehicle

TBS – Treasury Board Secretariat UCL – Upper Confidence Level UFR – usage fee reduction USA – United States of America

VDTF – Victoria’s Department of Treasury and Finance VFM – value for money

WDBA – Windsor-Detroit Bridge Authority WEMG – Windsor Essex Mobility Group

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LIST OF SYMBOLS m_Spub – solely public membership function

m_Mpub – mostly public membership function m_ES – equally shared membership function m_Mpri – mostly private membership function m_Spri – solely private membership function σ – population’s standard deviation U – population’s mean value

Z – Z value taken from normal curve table

X_10%– range of data encompassing ten percent of an assumed normal distribution curve, equally split between each side of the mean

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1 CHAPTER 1

A NATIONAL CONTEXT FOR P3s 1.1 Introduction

Public-Private Partnerships (P3s) are rapidly emerging as a predominant form of public infrastructure procurement in Canada in lieu of conventional methods due to their capacity for accessing alternative financing sources and transferring multiple project risks away from the public sector. The emergence of P3s in Canada originates from the public sector’s “new public management” (NPM) approach to governance in response to globalization pressures and increasing levels of both infrastructural necessities and public debt.¹ Under NPM, P3s are used to procure public infrastructure more efficiently by drawing private actor investment and involvement into the public sphere.

On an international level, governments are globally embracing P3s as a means to procure new infrastructure – and services – to address an “infrastructure deficit.”² The European Union (EU), World Bank, and Organization for Economic Cooperation and Development (OECD) have all developed regulations, guidelines, and promotional campaigns for the global use of P3s,³ while the European Commission (EC) publicly

1 Darrin Grimsey and Mervyn Lewis, Public Private Partnerships: The Worldwide Revolution in Infrastructure Provision and Project Finance (Edward Elgar Publishing, 2007).; Biljana Rakić and Tamara Rađenović, “Public-Private Partnerships as an Instrument of New Public

Management,” Facta Universitatis-Series: Economics and Organization 8, no. 2 (2011): 207–20, http://scindeks.ceon.rs/article.aspx?artid=0354-46991102207R.

2 Anthony E Boardman, Matti Siemiatycki, and Aidan R Vining, “Public-Private Partnerships in Canada and Elsewhere” 9, no. 12 (2016), 1.; Eoin Reeves, “Public—Private Partnerships in Ireland: Policy and Practice,” Public Money & Management 23, no. 3 (July 1, 2003): 163,

doi:10.1111/1467-9302.00364.; Geethanjali Nataraj, Infrastructure Challenges in South Asia: The Role of Public-Private Partnerships, ADB Institute Discussion Papers, vol. 80, 2007, 5.

http://www.adbi.org/discussion-paper/2007/09/27/2364.infrastructure.challenges.south.asia/.

3 European Commission, “Guidelines for Successful Public Private Partnerships,” DG Regional Policy Http://ec. Europa. Eu/regional_policy/sources/docgener/guides/ppp_en. Pdf (Brussels:

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termed the “Investment Plan for Europe” – a monolithic investment program premised on procuring public infrastructure through large-scale financing from the private sector⁴ – its number one initiative in the EC’s new “roadmap for getting Europe back to work, based on clear priorities… to boost [its] economy.”⁵ In North America alone, cumulative P3 investments reached over 200 billion dollars in either planned or realized monies by 2010.⁶ In the United States, the Obama administration heavily considered policies to attract private financing and investment of large infrastructure projects.⁷

North of the American border, Canadian governments have embraced P3s even more than their neighbouring state; scholars note that “there has been much more P3 activity in Canada than in the USA.”⁸ The 2011 Canadian federal budget introduced measures to ensure the national use of P3 projects increased, making it mandatory for government departments and agencies to assess and evaluate the feasibility of procuring large pieces of public infrastructure – or megaprojects – through P3 contracts:

European Union, 2003); Banco Asiático de Desarrollo, Banco Asiático de Desenvolvimento, and others, “Public Private Partnerships Reference Guide Version 2.0” (Washington, D.C.: World Bank, 2014); OECD, “Recommendation of the Council on Principles for Public Governance of Public-Private Partnerships,” Oecd (Paris: OECD, 2012),

https://www.oecd.org/governance/budgeting/PPP-Recommendation.pdf.

4 European Commission, “European Commission Investment Plan,” 2015, http://eur- lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52015DC0012&from=EN.

5 European Commission, “A New Start: European Commission Work Plan to Deliver Jobs, Growth and Investment” (Strasbourg, 2015), par. 4. http://europa.eu/rapid/press-release_IP-15- 6308_en.htm.

6 In American dollars. See Public Works Financing, “Public Works Financing Major Project Database” (Peterborough, NH, 2016), http://pwfinance.net/projects-database/.

7 White House Press Secretary Office, “Increasing Investment in U.S. Roads, Ports and Drinking Water Systems through Innovative Financing,” 2015, http://www.nawc.org/uploads/documents- and-publications/documents/2015 BUILD AMERICAN INVESTMENT THROUGH

INNOVATIVE FINANCING FACT SHEET.pdf.

8 Anthony E. Boardman and Aidan R. Vining, “P3s in North America: Renting the Money (in Canada), Selling the Roads (in the USA),” in International Handbook on Public-Private Partnerships, ed. Graeme A. Hodge, Carsten Greve, and Anthony E. Boardman (Cheltenham:

Edward Elgar Publishing, 2010), 355.

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Going forward, federal departments and agencies will be required to evaluate the potential for using a P3 for large federal capital projects. All infrastructure projects creating an asset with a lifespan of at least 20 years and having a capital cost of $100 million or more will be subjected to a P3 Screen to determine whether a P3 may be a suitable procurement option.

Should the assessment conclude that there is P3 potential, the procuring department will be required to develop a P3 proposal among possible procurement options.⁹

Canada now boasts what is widely considered to be one of the most successful state models of P3s in the world.¹⁰ At the end of 2016, a total of 247 P3 projects have been either approved for commission, under construction, or completed in Canada¹¹ across multiple public sectors¹² resulting in an estimated capital value of over 116 billion dollars.¹³ As a global leader in P3 infrastructure procurement, Canadian federal,

9 Department of Finance Canada, “Budget 2011, The Next Phase of Canada’s Economic Plan: A Low-Tax Plan for Jobs and Growth,” 2011, http://www.budget.gc.ca/march-mars-

2011/plan/chap4a-eng.html., 102.

10 Mark Hellowell, “Public-Private Partnerships: What the World Can Learn from Canada” (The Canadian Council for Public-Private Partnerships, 2014.), http://www.constructcanada.com/wp- content/uploads/2014/08/canada_p3_white_paper_swg.pdf.

11 I.e. from initial stages done post-project approval and pre-project construction – such as request for qualifications, request for proposals, or commercial close – to stages done post-project

construction, such as the operations and maintenance phases of a P3 facility or complete

expiration of the P3 contract entirely. See The Canadian Council for Public-Private Partnerships,

“Canadian PPP Project Database” (Toronto: CCPPP, 2016), http://projects.pppcouncil.ca/ccppp/src/public/search-project.

12 I.e. Transportation, health, energy, justice, education, accommodations, recreation, water treatment, and information technology. Supra note 9.

13 In Canadian dollars. See Stephen Thorne, “The World Learns About P3s from Canada”

(Toronto: The Canadian Council for Public-Private Partnerships, 2016),

http://www.pppcouncil.ca/web/News_Media/2016/The_World_Learns_About_P3s_from_Canada .aspx.

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provincial, and municipal governments are highly committed to incorporating private investment in their infrastructure projects, especially in the transportation sector.¹⁴

1.2 Defining Optimal Risk Allocation

P3 megaprojects are having a profound influence on Canada’s infrastructural landscape, albeit the large majority of P3 projects in Canada are contracted primarily through provincial governments and in primarily urban areas.¹⁵ As P3s continue to grow in national popularity, the need for a clear and cohesive dialogue between Canadian practitioners, from both public and private sectors, increases. One of the main factors considered in structuring P3s is risk allocation and transfer.

More specifically, the success of P3s is dependent on agreement between project actors over which parties will bear potential benefits or losses incurred from risks that may arise over a project’s timeline. Factors like costs associated with mitigating a risk, the likelihood of a risk’s occurrence, and a risk’s potential severity to a project all play pivotal roles in deciding which parties should bear which risks, and how much they should be compensated for bearing them.

All notable project risks have the potential to directly affect a project and/or its actors adversely in two general ways: (i) a project’s provision of responsibilities¹⁶ or (ii) a project’s financial capacity.¹⁷ Since P3 advocates characterize the procurement process as an innovative way to meet service-based and finance-based objectives, mitigating risks

14 Charles Lammam, Hugh MacIntyre, and Joseph Berechman, “Using Public-Private Partnerships to Improve Transportation Infrastructure in Canada,” no. May (2013): 1–78, papers3://publication/uuid/35113246-01FE-4BB2-8E7E-41064EFAA36D.

15 Boardman, Siemiatycki, and Vining, “Public-Private Partnerships in Canada and Elsewhere,” 1.

16 For example, when a facility’s construction is behind schedule.

17 For example, when a facility’s construction incurs unanticipated cost overruns.

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that affect project responsibilities and financing is crucial. Where P3s deliver public services efficiently and economically, they create value for money (VFM), which is broadly defined as “the optimum combination of lifecycle costs and quality to meet user requirements.”¹⁸

VFM will be elaborated on in the next chapter. For now, it is important to know that P3s are premised on obtaining VFM, and – of the factors that influence a P3’s VFM – the allocation of project risk is one of the most critical. Risk transfer is “at the heart” of P3 procurement.¹⁹ Indeed, the “core of a P[3] arrangement… is the transfer of appropriate risks from the public to the private partner.”²⁰ The comprehensiveness with which risk is treated in P3 projects separates this highly innovative infrastructure procurement model from conventional procurement models. P3 contracts tend to be much more complex than conventional public-private contracts, as risk transfer and risk management are integral contractual components to the design, build, finance, operation, and management (DBFOM) of P3-procured public infrastructure.

While Chapter 2 explicates the major players and steps involved in P3 procurement processes, a general conception of risk allocation can be portrayed here.

Risk transfer occurs on many levels in P3s. First, there is a primary transfer of risk from the public sector to the private sector – i.e. the P3 contract – followed by a secondary

18 A Roumboutsos et al., “Risks and Risk Allocation in Transport PPP Projects: A Literature Review,” in COST Action TU1001 Public Private Partnerships: Trends & Theory, ed. Athena Roumboutsos and Nunzia Carbonara (COST European Cooperation in Science and Technology, 2011), 17-18, http://www.ppptransport.eu/docs/2011_12_Discussion_Papers.pdf.

19 E R Yescombe, Public-Private Partnerships: Principles of Policy and Finance, 2nd ed., Elsevier Finance (London: Butterworth-Heinemann, 2011),

https://books.google.ca/books?id=fyHWtz7OepsC.

20 Roumboutsos et al., “Risks and Risk Allocation in Transport PPP Projects: A Literature Review,” 18.

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transfer of risk delineated between private sector parties – i.e. subcontracts – leaving many potential opportunities for suboptimal risk transfer to take place. Of course, P3 actors do not possess clairvoyant capabilities; there will be parties that experience a more desirable project outcome than others pending which risks arise and which players they adversely affect.

However, through the educated input of public and private practitioners – whose opinions are supported by both theoretical knowledge of, and practical experience with, P3 risk management – the primary transfer of risk in P3 contracts can reach equitable levels to achieve what is referred to as optimal risk allocation. Optimal risk allocation is achieved when a P3 contract, which is signed at the end of the P3 procurement phase, transfers risks to the parties best able to manage them and at the most efficient cost.²¹

Figure 1.1 provides a broad summary of the theoretical advantages of using P3 procurement models in lieu of conventional procurement models. The following chapters expound on these concepts. For now, it is important to know that P3 benefits can only be realized through sound contracts premised on optimal risk allocation between both public

21 Jennifer Firmenich and Marcus Jefferies, “Risk Management in PPPs: Emerging Issues in the Provision of Social Infrastructure,” in New Forms of Procurement: PPP and Relational

Contracting in the 21st Century, ed. Marcus Jefferies and Steve Rowlinson (New York:

Routledge, 2016), 71–94; Lammam, MacIntyre, and Berechman, “Using Public-Private Partnerships to Improve Transportation Infrastructure in Canada”; Bon Gang Hwang, Xianbo Zhao, and Mindy Jiang Shu Gay, “Public Private Partnership Projects in Singapore: Factors, Critical Risks and Preferred Risk Allocation from the Perspective of Contractors,” International Journal of Project Management 31, no. 3 (2013): 424–33, doi:10.1016/j.ijproman.2012.08.003;

US Department of Transportation and Federal Highway Administration, “Risk Assessment for Public-Private Partnerships: A Primer,” no. December (2012): 44,

http://www.fhwa.dot.gov/ipd/pdfs/p3/p3_risk_assessment_primer_122612.pdf; Mario Iacobacci,

“Dispelling the Myths: A Pan-Canadian Assessment of Public-Private Partnerships for Infrastructure Investments,” no. January (2010): 83; Yongjian Ke et al., “Preferred Risk

Allocation in China’s Public-Private Partnership (PPP) Projects,” International Journal of Project Management 28, no. 5 (2010): 482–92, doi:10.1016/j.ijproman.2009.08.007.

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and private actors. The remainder of this thesis delineates the P3 process, illuminates factors that affect risk allocation, and offers solutions based on original research premised on extensive literature reviews.

Figure 1. 1: Key features Distinguishing P3s from Conventional Procurement²² P3

Procurement Model

Conventional Procurement Model

Comparative Advantage of P3 Model

Output-based contracts Input-based contracts Promotes private sector innovation in building public infrastructure

Mostly or fully private financing

Mostly or fully public financing

Transfers investment risks from taxpayers to private sector

Conditional payments based on delivery

Regular payments in intervals

Gives Incentives to the private sector to work both on time and on budget

Integration of two or more project phases (i.e. design, build, operation, and/or maintenance)

Project phases contracted separately (i.e. design, build, operation,

and maintenance)

Transfers project risks from taxpayers to private sector; this ensures accountability

Project management by private sector

Project management by public sector

Utilizes private sector’s expertise in specialized fields

The goal of this thesis is to develop a clearer understanding of risk allocation in P3s, followed by developing further insight into what is required to arrive at sound risk allocation models between public and private actors at the P3 procurement stage. The assessment, allocation, and management of P3 project risks involve a plethora of players from public and private sectors alike. Thus, insights into the competing perspectives of

22 This is a summative adaptation of Mario Iacobacci’s original table; see Iacobacci, “Dispelling the Myths: A Pan-Canadian Assessment of Public-Private Partnerships for Infrastructure Investments,” 3. The third section of the table concerning the comparative advantage of P3 models over conventional models is an original addition.

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P3 actors – both public and private – based in Canada have been sought out and analyzed for empirical review.

1.3 Thesis Structure

The remaining structure of this thesis is as follows. Chapter 2 introduces the core lexicon of the P3 procurement process and its administration. A detailed overview of the general P3 procurement process, from its inception as a considered possibility to its completion at financial close, will provide readers with a comprehensive understanding of the many actors and stages involved in the signing of an official P3 contract. Once fundamental P3 concepts are explained, modern research trends and academic studies of focus are underlined in literature reviews of forthcoming chapters.

Chapter 3 provides a theoretical overview of how P3s can be examined and assessed. Theory frameworks and methodologies used to analyze P3 risk allocation and risk management are considered. Agency theory is then adopted to conceive of the relationship between public and private parties as a principal-agent relationship premised on self-motivation and a progressive separation between power and control. The theoretical concept of risk is examined and demarcated from uncertainty before assessing P3 project risk management (PRM) in the following chapter.

Chapter 4 outlines the PRM process in detail based on an extensive literature review. Concepts like pre-contractual PRM and post-contractual PRM, first-step risk transfer and second-step risk transfer, and risk identification, assessment, classification, and mitigation are explained to provide an overview of the PRM process for both public and private actors.

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Chapter 5 presents a literature review of articles from which this thesis’ original research is premised. This core literature database is comprised of a dozen articles that directly reference risk allocation preferences between public and private sectors. A cross- comparative analysis of the core literature database is conducted to arrive at sound risk preferences and contentious risk preferences. Sound risk preferences are defined as those given the same allocation preferences amongst the dozen pieces of literature that comprise the study’s core database. Contentious risk preferences are defined as those that have been allocated to different preferential sectors at least once amongst the articles in the core literature database.

Chapter 6 presents an original psychometric study premised on the allocation preferences of contentious risks outlined in the previous chapter. Sound risks are not included in the study because it is assumed that their conclusive allocation preferences within the core literature database signifies a lessened need to conduct original research over their allocation preferences. An expert questionnaire is used to obtain risk allocation preferences of contentious P3 project risks from both public and private sector practitioners. Respondent views are measured using a semantic differential scale. The data is aggregated and analyzed through various quantitative methods to find patterns of risk allocation preferences for P3s both within and between the public and private sector.

After a data analysis of the questionnaire’s preliminary findings, explanations are proposed to describe identifiable patterns of reasoning within and between respondent groups. This chapter proposes an equitable risk allocation decision model premised on the study’s respondent preferences.

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Chapter 7 concludes with an acknowledgement of the study’s limitations – both methodological and theoretical – and suggestions for future research, highlighting further recommendations for risk management and risk transfer in P3 literature.

Keyword searches include commonly used phrases and abbreviations associated with P3s, such as: public-private partnership (P3 or PPP), private financing initiative (PFI), alternative financing and procurement (AFP), design-build-finance-operate- maintain (DBFOM), build-operate-transfer (BOT), build-operate-own (BOO), build- operate-own-transfer (BOOT), project risk management (PRM), risk mitigation, risk transfer, and risk allocation, among others.²³ References retrieved from keyword searches were subject to content analysis to confirm their thematic relation to optimal risk allocation in P3s.

23 PFI and AFP procurement methods “are essentially an outgrowth of the public-private partnership.” These terms have been used interchangeably in literature to denote P3-esque projects. The use of different acronyms is often a matter of politicized rhetoric – contingent on geopolitical trends of different regions or politically-charged motives of public organizations.

Plainly, “any arrangement which involves a government player and a [risk-bearing] private sector player may be described as a kind of public-private partnership.” See Kevin McGuinness and Steve Bauld, “P3, PFI, and AFP: De-Cluttering the Terms Used Regarding Capital Asset Procurement,” Summit: Canada’s Magazine on Public Sector Purchasing 13, no. 4 (2010): 2, http://www.summitconnects.com/Articles_Columns/PDF_Documents/20100601/jun10_vol13_i4 _07.pdf.

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THE P3 PROCUREMENT PROCESS 2.1 Introduction

Chapter 2 aims to both clarify P3 nomenclature and elucidate the P3 procurement process. Before conducting a literature review of contemporary P3 research on project risk management and risk allocation, it is necessary to develop an understanding and appreciation of the wide array of influential actors and project phases involved in P3 procurement. Because P3 contracts contain sensitive, privileged information, data on project bidding, project negotiation, and project implementation is scarce. A large amount of contractual data on the intricacies of P3 projects is inaccessible because private biding firms “are often reluctant to share information about their strategies.”²⁴ Thus, an empirical assessment of primary data pertaining to specific policies between public and private parties is unfeasible.

However, theoretical models that explain the P3 procurement process, P3 project decision-making, and P3 risk management – especially from the public sector’s perspective – are plentiful.²⁵ Such resources are used to conduct a literature review explaining the chronological P3 procurement process and the major actors involved.

Concepts such as project risk, P3 player relationships, obtaining value for money, and the feasibility of conducting P3s in lieu of conventional models are explained largely from the perspective of the public sector.

24 Dennis De Clerck, “Public-Private Partnership Procurement : Game-Theoretic Studies of the Tender Process,” Ku Leuven Faculty of Economics and Business, no. 490 (2015): 13,

https://lirias.kuleuven.be/bitstream/123456789/500596/1/PhD+dissertation+Dennis+De+Clerck.p df.

25 Ibid, 12.

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Due to their situational nature, a consensus on the exact definition of P3s does not exist. P3 literature invites a multidisciplinary study of multiple industries, scopes, and sectors of focus.²⁶ Across the globe, different countries have their own varying experiences with P3 projects – so much so that scholars have argued in favour of assessing P3 projects on a country-specific basis in lieu of extrapolating results to develop global models.²⁷ There are, however, general characteristics of P3s that consistently arise in the literature examined: (i) P3s are a partnership agreement between public and private sectors for delivering infrastructure and/or services; (ii) the tasks and responsibilities involved in delivering infrastructure – which may include service components as well – are shared between partners; and (iii) the risks and rewards involved with infrastructure delivery are also shared.²⁸

Also, it is generally accepted that the private sector is responsible for two or more of the following infrastructure tasks in any P3: (i) design, (ii) build, (iii) finance, (iv)

26 Disciplines used to assess P3s include political science, legal science, and economics.

Industries of study include transportation, health care, and education. Scopes of study include international, national, jurisdiction-based, and case-based. Sectors of focus include project risk management, operations management, and project cost-benefit analyses. These lists are not exhaustive; P3 literature is not limited to the aforementioned examples.

27 Albert P. C. Chan et al., “Drivers for Adopting Public Private Partnerships—Empirical Comparison between China and Hong Kong Special Administrative Region,” Journal of Construction Engineering and Management 135, no. 11 (2009): 1115–24,

doi:10.1061/(ASCE)CO.1943-7862.0000088; Ronald W. McQuaid and Walter Scherrer,

“Changing Reasons for Public–private Partnerships (PPPs),” Public Money & Management 30, no. 1 (2010): 27–34, doi:10.1080/09540960903492331; Ofer Zwikael and Mark Ahn, “The Effectiveness of Risk Management: An Analysis of Project Risk Planning Across Industries and Countries,” Risk Analysis 31, no. 1 (2011): 25–37, doi:10.1111/j.1539-6924.2010.01470.x; K S Rebeiz, “Public-Private Partnership Risk Factors in Emerging Countries: BOOT Illustrative Case Study,” Journal of Management in Engineering 28 (2012): 421–28,

doi:10.1061/(ASCE)ME.1943-5479.0000079.

28 Iacobacci, “Dispelling the Myths: A Pan-Canadian Assessment of Public-Private Partnerships for Infrastructure Investments”; Lammam, MacIntyre, and Berechman, “Using Public-Private Partnerships to Improve Transportation Infrastructure in Canada.”

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operation, and/or (v) maintenance (DBFOM).²⁹ It is assumed that all carefully structured P3 contracts are created in the attempt to promote the benefits of: an optimal share of risk and reward between partners, an optimal method of financing between partners, and performance-based conditional payments by which the public sector sets goals and the private sector micromanages the means to achieve them.

Performance-based conditional payments are contingent on a P3 contract’s stipulations (e.g. timelines of completion and materials that should be used) whereby private actors incur either rewards or penalties based on their performance exceeding, meeting, or falling short of the public sector’s stipulations.³⁰ This relationship generally transpires between the public sector’s specialized crown corporations and a consortium of specialized private firms that form a “special purpose vehicle” (SPV).

While the private actor in a P3 theoretically consists of a single company, it is generally a consortium of multiple joint venture companies (JVs) that form an SPV. A consortium is an association of several companies forming a coalition to adequately address the diverse levels of specialized industry experience required to produce public infrastructure. Because P3s delineate a diverse array of tasks to the private sector aside from simply building infrastructure – contra conventional procurement methods – private sector consortiums (i.e. SPVs) must address an array of fields: finance (e.g. insurance companies and banks), law (e.g. public-private mediation, land use permits, and

29 Samuel Carpintero, “Public-Private Partnership Projects in Canada : A Case Study Approach”

9, no. 5 (2015): 1; Iacobacci, “Dispelling the Myths: A Pan-Canadian Assessment of Public- Private Partnerships for Infrastructure Investments,” iv; Lammam, MacIntyre, and Berechman,

“Using Public-Private Partnerships to Improve Transportation Infrastructure in Canada,” iii.

30 Lammam, MacIntyre, and Berechman, “Using Public-Private Partnerships to Improve Transportation Infrastructure in Canada,” iv-v.

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environmental policy), engineering, construction, operation, and maintenance, among others.³¹

Another key aspect of SPV consortiums is that – despite being their own distinct legal entities – SPVs limit risks and liabilities transferred to them from public authorities.

Financial burdens and project responsibilities are spread throughout different JVs under SPVs.³² Potential risks transferred from the government to SPVs may include: project delays and cost overruns, erratic functionality of the finished facility, or the potential risk that the user demand and revenue stream projections denoted with a future piece of infrastructure are not realized.

In exchange for taking on various risks, SPVs can be reimbursed through: (i) availability payments, where the government directly compensates the SPV through pre- agreed periodic dates “based on the facility being available for use when needed and meeting certain requirements with penalties levied otherwise” (e.g. where government funds are allocated under the stipulation of safety regulations being met);³³ (ii) milestone payments, where the government pays the SPV through the completion of pre-agreed project standards;³⁴ (iii) full tolls, where the SPV retains all profit from the P3 facility for

31 Lammam, MacIntyre, and Berechman, “Using Public-Private Partnerships to Improve Transportation Infrastructure in Canada,” 4.

32 While at first blush it may appear to be a benefit that firms can absorb a shared risk under a SPV consortium, this shared risk can also harm the project, as it leaves firms susceptible to a complex allocation of tasks and responsibilities, which can be especially harmful if issues arise in projects and there is no clear actor or outlet to blame. This will be elaborated on in Chapter 4, Section 4.4.1 during a case study on the Right Honourable Herb Gray Parkway.

34 For milestone payments, like availability payments before it, payments “may be subject to a holdback provision or liquidated damages (penalties) should the private partner not fully meet the obligations as outlined in the project agreement’s predetermined performance specifications.” See Public Works and Government Services Canada, “Policy and Guidelines Supply Manual”

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an agreed period of time; or (iv) shadow tolls, where payments are issued “from the public sector authority based on the use of the facility. Wishing to receive payment, the private operator has an incentive to provide suitable customer service, thus enticing drivers to use a road.”³⁵ Any combination of these methods may be used to compensate SPVs.

Together, SPVs and specialized crown corporations interact under a mutually agreed upon contract to procure public infrastructure in Canada. The SPV consortium is usually incentivized with some future revenue stream over the life of a long-term P3 contract, which typically lasts 20 to 35 years.³⁶ Generally, the communal goal of P3s is to incentivize the private sector – known for possessing a presumably higher level of expertise and innovation than the government – to invest in large-scale infrastructure projects while absorbing a large share of accountability and risk associated with these projects.³⁷

In principle, the aforementioned revenue streams are supposed to cover the private consortium’s portion of investment in the project’s DBFOM while including a margin for profit to be realized over the course of the project’s lifecycle. Upon the end of the project’s lifecycle, contracts are either renegotiated or ownership of the facility (Government of Canada, 2016), 9.60.45, e., https://buyandsell.gc.ca/policy-and-

guidelines/supply-manual/section/9/60#section-9.60.

36 Elisabetta Iossa and David Martimort, “The Simple Microeconomics of Public-Private Partnerships,” Journal of Public Economic Theory 17, no. 1 (2015): 4.; Boardman, Siemiatycki, and Vining, “Public-Private Partnerships in Canada and Elsewhere,” 2.

37 De Clerck, “Public-Private Partnership Procurement : Game-Theoretic Studies of the Tender Process,” viii; Iacobacci, “Dispelling the Myths: A Pan-Canadian Assessment of Public-Private Partnerships for Infrastructure Investments,” 32.

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reverts back to the government.³⁸ In the event that asset ownership reverts back to the government, the P3 process has been referred to as a “rent to own” transaction; “that is, the public sector pays the private sector an annual rental fee for a specified period and then owns the asset at the end of that period.”³⁹

2.2 P3 Project Types

The aforementioned situational nature and complexity of P3s also means that their structure, or delivery model, will vary between projects. The delivery model is contingent on the public sector’s infrastructural needs, the project’s available funding options, the urgency associated with the project’s timeline, the expert agents available for the project, potential risks associated with the project, and other strategic considerations.⁴⁰

The private sector’s involvement in DBFOM phases of a P3 project signifies its delivery model. While a literature review revealed that scholars consider a P3 to involve the private sector in at least two phases of DBFOM,⁴¹ progressive interpretations of P3s are widely adopting a consensus that major private sector involvement in the financing of projects are a prerequisite to be considered an authentic P3. By this standard, a P3 project provides “project financing and also engages in at least two of the other [DBOM]

activities… ensur[ing] that the private sector has some [financial] ‘skin in the game.’”⁴²

38 David Parker and Keith Hartley, “Transaction Costs, Relational Contracting and Public Private Partnerships: A Case Study of UK Defence,” Journal of Purchasing and Supply Management 9, no. 3 (2003): 97–108, doi:10.1016/S0969-7012(02)00035-7.

40 Public Works and Government Services Canada, “Policy and Guidelines Supply Manual,”

9.60.5, a.

41 Iacobacci, “Dispelling the Myths: A Pan-Canadian Assessment of Public-Private Partnerships for Infrastructure Investments,” 3; Lammam, MacIntyre, and Berechman, “Using Public-Private Partnerships to Improve Transportation Infrastructure in Canada,” 7.